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Tax Report

Updated March 8, 2000 12:47 a.m. ET

JOB-HUNTING EXPENSES rank high among commonly overlooked deductions.

Tax advisers say many people don't realize they may be able to deduct job-search expenses, whether or not they get a new job. Eligible expenses can include the costs of travel, resume preparation and employment agencies. The basic rule: Job-search expenses typically are deductible to the extent that they and other miscellaneous itemized deductions exceed 2% of adjusted gross income.

People searching for work in a new business or trade, or looking for work for the first time, aren't eligible. The Internal Revenue Service also says taxpayers can't deduct anything if there was a "substantial lack of continuity" between the end of a person's last job and the search for a new one, says Martin Nissenbaum of Ernst & Young. But "the amount of time spent searching shouldn't affect your ability to take a deduction as long as you don't substantially delay the beginning of your search," Mr. Nissenbaum says.

Whatever the case, tax advisers say it's very important to keep detailed records to support your job-search expenses.

SURGING REVENUES in many states bolster prospects for tax cuts.

Total state-tax revenues climbed 7.4% in last year's final quarter from the same period in 1998, says a report to be issued soon by the Center for the Study of the States. That was the year's largest quarterly gain, says the report by Elizabeth I. Davis and Donald J. Boyd. Further strong gains are likely this year, says Ms. Davis, senior policy analyst at the center, a unit of the Nelson A. Rockefeller Institute of Government in Albany, N.Y.

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Personal income-tax revenues rose 9.1% in the latest quarter, while sales-tax revenues gained 7.3%. Corporate-tax revenues increased only 3.8%, extending several years of "poor performance," the report says. Among states considering tax cuts are New York, Minnesota, Massachusetts, Michigan, New Jersey, Pennsylvania, California and Florida. "Only a few states, such as Iowa, Kansas, Louisiana, Tennessee and Wyoming, are experiencing some tightness in their budgets," the report says.

PROPOSED RULES could mean a tax hit for many tax-exempt groups.

Suppose a soft-drink manufacturer pays a college to be its exclusive soft-drink provider on campus. Is that a tax-exempt payment? Or does the college owe taxes because it is "unrelated business income"? Under proposed IRS rules, exclusive marketing deals such as this could require many colleges and other tax-exempt groups to pay some unrelated business income taxes, says Marcus S. Owens, a former IRS official now at the law firm Caplin & Drysdale in Washington.

Until now, colleges generally didn't consider such income to be taxable, says Mr. Owens, who helped write the new rules while at the IRS. Former IRS official James J. McGovern, now at KPMG in Washington, calls the proposed rules "big news" for many colleges, universities and other exempt groups. These rules "have the potential to significantly increase" taxes for many exempt groups signing exclusive arrangements, such as those involving athletic gear and soft-drink contracts, Mr. McGovern says.

An IRS hearing is planned for June 21.

ELECTRONIC FILING continues to increase. As of Feb. 25, the IRS had received about 21.2 million individual income-tax returns via cyberspace. That was up 14% from a year earlier.

SOARING REFUNDS: The IRS approved $52.1 billion of personal income-tax refunds as of Feb. 25, up 20% from a year earlier. The average refund rose 6.1% to $1,834. Economists expect bulging refund payments to bolster first-quarter retail sales.

INTEREST RATES will rise next quarter on IRS underpayments and overpayments. For example, the rate on individual underpayments will be 9%, up from 8% this quarter, an IRS spokesman says.

THE PAYMENT DEADLINE for many taxpayers is later than they think.

First, some background, as reported here last week: For most people, the tax deadline, usually April 15, is April 17 this year. That's because April 15 falls on a Saturday. But millions of taxpayers in six states and part of New York state who routinely file to the IRS in Andover, Mass., will have an extra day, until April 18. That's because April 17 is Patriots Day, which is a state holiday in Massachusetts-and also in Maine.

But many Northeasterners are instructed to send their estimated tax payments, extension requests with payments, and certain returns with payment vouchers, to Pittsburgh, not Andover. So what's their deadline? The IRS has decided that all these Northeasterners will get an extra day, until April 18.

This affects taxpayers in Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island and New York state north of Westchester and Rockland counties.

BRIEFS: KPMG is expected to announce soon that former IRS Deputy Commissioner Michael P. Dolan will join the firm as "national director of IRS policies and dispute resolution." ... Cybertaxes: In a survey of corporate tax executives by the law firm Baker & Hostetler LLP, 85% agreed that goods and services sold in cyberspace will eventually be taxed.

--Tom Herman

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